Financial Benefits of PFC

Financial Savings from Implementing PFC
Benefits & Savings of Power Factor Correction
Utility Company Penalty 
Although the utility company has to supply apparent power (KVA), their bill is based on energy consumption (KWH). The utility company has the added cost of distribution equipment, when they cannot bill for the full amount of power supplied. Since a customer with a low power factor has a larger overhead cost then a customer with a higher power factor some utilities charge penalties for operating with a low power factor. When a company is charged a power factor penalty, then installing PF correction often makes financial sense.

I2R Losses
Reactive Power does have some small costs to your system in the form of “Line Losses” or “I2R Losses”. When the utility company supplies reactive power, the current must flow from the utility meter to the inductive load. The wires between the meter and the load have resistive heating losses. This is the one exception of where you are billed for reactive power, because line losses convert reactive power into real power. The amount of line losses is contingent on the feeder sizes, length, and load. It’s not very common to see cases where the savings would be greater than 1% of KW usage. To maximized the savings for power factor correction it is best to install power factor correction as close as possible to the inductive loads, reducing line losses by reducing the length of current travel.
Voltage Drop  
Voltage Drop and Line Losses are hand in hand. An added benefit to adding power factor correction is reducing the line current, which reduces voltage drop. For long distribution feeders with signification voltage drop, this can sometimes be an attractive way of both saving on line losses and increasing voltage.